At the beginning of 2011, Midway Hardware has an inventory of $400,000. Because sales growth was strong during 2011, the owner wants to increase inventory on hand to $450,000 at December 31, 2011. If net sales for 2011 are expected to be $1,600,000, and the gross profit rate is expected to be 35%, compute the cost of the merchandise the owner should expect to purchase during 2011.
A) $1,490,000.
B) $1,040,000.
C) $1,090,000.
D) $1,600,000.

Question

Quizplus · Accepted Answer

Beginning inventory + Purchases = Cost of Goods Sold + Ending Inventory
$400,000 + Purchases = ($1,600,000 * 65%) + $450,000
$400,000 + Purchases = $1,040,000 + $450,000
Purchases = $1,090,000

At the Beginning of 2011, Midway Hardware Has an Inventory